We have two young children, college is not fully covered, yet, we have a mortgage hanging on our shoulders but we canceled my wife’s life insurance. For some personal finance fanatics this will cause a heart attack.
All financial planners have life insurance mapped somewhere in their plans and so do we. But thanks to an extra life management technique that few use, we found redundancy in my wife’s life insurance!
First, a little about the technique; years ago I took a traveling job that allowed my wife to stay at home with the kids and with administrative responsibility of the household.
Before long I had become disconnected with our financial situation. I had no idea what accounts we had or whom all we owed.
To address this, my wife made a “financial cheat sheet.” A listing of every debtor, bank account or routine bill, complete with account number and contact info… “just in case.” It was a great idea and a list we planned on updating annually.
Until recently, I thought we were the only ones that did this, but Patrick at CashMoneyLife calls his list a Financial Inventory. Patrick however takes his list a little further including contacts of close family, friends, attorneys and even list his business contacts, accounts and information.
This additional information made great sense; I was compelled to update our cheat sheet. While reviewing our list however a red flag was raised. We had two listings for my Wife’s term life insurance policies. One policy was purchased several years ago when the kids were young. She never hesitated to pay the annual premium; it had become routine. Because this original policy was so routine and so old we even forgot how much this policy was for.
Then, almost two years ago, now in a much better financial condition, we decided to increase our insurance coverage. We purchased a new policy for me in addition to the coverage I have through my employer. We also purchased a new policy my wife.
So here we were with two listings for my wife along with account number and contact information but not the coverage value. Making a couple calls and filling out a few forms we learned the older policy was actually for $100K, the newer policy was for $250,000. Taking it one more step we found that the costs for each policy were relatively similar at a little over $100/$100K/year.
Insurance is a prudent investment, but in our position we simply don’t need that much. $350,000 is overkill. The smaller policy was canceled.
Taking the time to document all of our financial relationships on one page was originally “just in case.” As it turns out, the few minutes we spend will save us a lot of money.
Create your own financial cheat sheet, for the benefit of those that may have to address your finances in your absence and to provide yourself witha little more clarity on your expenses or needs. If you would like to get an idea of what to include, check out this post by Patrick at CashMoneyLife: How To Organize Your Finances with a Financial Inventory.